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Editorial:
June 2006

The suburban economy and its enemies

Treasury Secretary Ken Henry’s recent address to
business economists was an apt prism through which to survey
Sydney’s immediate past and distant future. According to reports, he
said ‘the [Chinese] resources boom had produced a “two-speed”
economy, with unemployment rising in the south-eastern states but
falling in the west and north’. Dr Henry is reported to have told
his Sydney audience, ‘I don’t think everybody in this room should be
moving to Perth. But let me make this prediction: some of you will’.

These comments serve as a reminder of how quickly the ground shifts
in an open and dynamic economy. It wasn’t so long ago that New South
Wales, dominated by Sydney, was dubbed the powerhouse of Australia’s
extended boom.

Even the most elaborate attempts at urban planning can be superseded
by events. After all, modern Sydney was itself, until recently,
shaped by forces that outpaced the bureaucrats and planners. These
forces are assuming a new dynamic in the conditions described by Dr
Henry. Competition from the interstate resources boom is a now major
factor driving state politics, together with slowing jobs and
property markets and nagging infrastructure constraints. All are
feeding the momentum for revitalization - for a new phase of urban
growth that will push the limits advocated by planners,
environmentalists and others campaigning to turn the city’s
socio-economic tide.

The suburban economy

There is surprisingly little acknowledgement that, overall, the
transformation of suburban Sydney in the wake of globalisation has
been a success story. Over the last twenty years, the middle to
outer suburbs adapted to volatile domestic and international
environments, as well as technological change at breakneck speed,
with an effective model of economic development. The key point is
that this had more to do with the interplay of space and mobility
than good planning.

By no means was this inevitable. Sydney could have succumbed to the
downside of what urban theorists call the ‘world city’ phenomenon.
According to the research group Globalisation and World
Cities (GaWC),
world cities are major international hubs with stronger ties to the
global economy in terms of capital flows, trade and movement of
people and information than to their own hinterlands. GaWC ranks
Sydney in the second or ‘beta’ echelon of world cities, along with
places like San Francisco and Mexico City (Melbourne is ranked in
the third or ‘gamma’ echelon). Hence Sydney’s ‘global arc corridor’,
which stretches from Macquarie Park south to the CBD’s gleaming
towers and onto Sydney Airport and Port Botany, hosts the cream of
the country’s finance, legal and business services, information
technology, engineering and marketing industries.

Some world cities are distinguished by vast disparities in wealth
and economic opportunity - between such globally oriented zones,
sucking up the region’s capital, infrastructure capacity, skills
base and government services, and stagnant hinterlands inhabited by
struggling workers in declining, marginal industries or masses of
unemployed. But that was not Sydney’s fate.

Why and how did a viable economy develop in the middle to outer
suburbs of the city? To answer this question it is necessary to
recall some of the constants of Sydney’s recent history. The gradual
emergence of global Sydney generated higher land values throughout
the inner-city. Consequently, many inner-city land uses associated
with nineteenth century transport nodes, such as the light
industrial plants, depots and warehouses clustered near the railway
junction south of the CBD or along the harbour foreshores of the
inner-west were no longer sustainable in the face of escalating
demands for office space and gentrification.

Combined with the growth of motor vehicle mobility for passenger and
freight transport, particularly since the 1950s, this led to the
transfer of many industrial, transport and warehousing activities to
cheaper land on the western and south-western fringes. At that stage
of the city’s evolution, there were relatively few restrictions on
the acquisition of space for these and related purposes. And the
growth of road transport relative to maritime and rail sealed the
necessary links to international gateways on the eastern seaboard,
like Sydney Harbour, Port Botany and the airport.

These trends were intensified by the construction of a road network
to service the interstices of Sydney’s nineteenth century ‘hub-and-spokes’ or radial railway lines, culminating in the orbital motorway
network (the dreaded ‘tollways’). Not only did motor vehicle
mobility facilitate industrial dispersion, but also residential
settlement adjacent to the new industrial jobs. The radial railway
lines were Sydney’s nineteenth and early twentieth century template;
the orbital motorway is the city’s contemporary template.

As in the case of industrial relocation, there were fewer
restrictions on residential development for the workers employed in
these dispersed industries (this began to change by the mid-1990s).
Inexpensive housing, a mild climate, out-door lifestyles and a
preference for detached houses on sizeable blocks were also
attractions. Over time western Sydney achieved 75 per cent regional
employment self-containment, and key travel patterns are now
intra-regional.

Later phases of globalisation reinforced this spatial pattern. The
rise of global Sydney was a major driver, at least since the early
1980s, of economic policies that favoured the liberalisation of
economic activity. Naturally, this had repercussions across the rest
of the city. One fundamental outcome was the expansion of services -
such as retail - relative to manufacturing and commodities as a
proportion of the national economy. The appearance of diverse
service industries in the outer suburbs was yet another function of
space and mobility. In western Sydney, this was closely associated
with the region’s booming population growth. From the 1970s to
recent times, western Sydney’s population growth outstripped the
rest of the city and country.

By the early 1990s, market oriented reform had ushered in a period
of low inflation, interest rates and input costs, the latter having
been wrung from difficult reforms to energy and other public
utilities. The interaction of steady economic and population growth
powered a strong consumer economy linked to settlement of the fringe
suburbs. Such areas experienced a boom in residential and commercial
construction, and the related demand for household fixtures,
appliances and goods.

These conditions unleashed a thriving small
business sector in services, operating in a competitive market
characterised by low entry barriers (low costs and overheads) and
narrow profit margins. This, too, was a by-product of globalisation,
as SGS Economics and Planning explain: ‘The concentration of small
business activity in NSW (and Sydney) and the more rapid growth in
the share of employment in this sector compared with other parts of
Australia may reflect the tendency for heightened fragmentation of
supply chains in globally engaged economic regions’. Presumably,
this is why Mark Latham harped on about ‘the small business-people,
the contractors, franchisees and consultants of the new economy’.

While market pressures caused the ‘unbundling’ of service providers,
advanced information and communications technologies were
integrating head office, back office, manufacturing and distribution
activities in land extensive facilities like the 50,000 plus square
metre Coles Myer and Coca Cola distribution centres at Eastern
Creek, and, in a different way, cutting-edge business and technology
parks like Norwest and Macquarie Park. These facilities, contiguous
with the orbital motorway, are creatures of space and motor vehicle
mobility, and always will be.

That is why the best elements of the NSW government’s City ofCities plan represent responsive rather than prescriptive
planning; they reinforce successful trends emerging from the
interplay of market forces. Plans for intensive commercial
development along orbital motorway corridors, such as the M7 and
particularly at its intersection with the M4, dubbed ‘the western
Sydney employment hub’, the refocus on important western centres
like Parramatta, Liverpool and Penrith as ‘regional cities’, and the
series of road-rail transport interchanges (also land extensive) are
prime examples.

Its enemies

This vibrant though vulnerable web of socio-economic connections is
always at the mercy of global conditions - witness the impact of
petrol prices - but also increasingly under challenge from domestic
political actors, principally environmentalists, urban planners,
some property developers and opinion makers. Their determination to
freeze urban boundaries and, as far as possible, reduce mobility to
public transport capacity, particularly rail, is hurting Sydney.
Hopefully, their influence is gradually receding under Morris
Iemma’s leadership.

Environmentalists and planners - two increasingly interchangeable
categories - are oblivious to the prospect that their creeping
regulations and imposts, and misallocated resources, could unravel
the suburban economy. Yet they will always struggle to mobilise
public opinion. Their all-purpose pretext, the climate change
hypothesis, relies on aggregated data which can’t be used to argue
particular cases. Take the NSW government’s recent decision to
review the costly ‘energy efficiency building sustainability’ rules.
While the Housing Industry Association came to the
issue armed with
a raft of statistics about price impacts and falling housing starts,
green outfits like the Total Environment Centre could do little but
sputter the magic words ‘greenhouse’ and ‘global warming’. They were
not in a position to show why, how and to what extent this
particular decision would exacerbate climate change.

Their other weapon is the peculiar concept of ecological or urban
‘footprint’. This purports to measure how much productive land and
water an individual, a city, a country, or humanity requires to
produce all the resources it consumes. On this measure, Sydney has a
footprint that covers 49 per cent of NSW or 150 times its actual
size, so its expansion must be constrained. The notion that wealth
can be equated to an amount of land, however, is a throwback to
pre-modern times. In advanced economies, wealth creation has more to
do with the elaborate transformation of natural inputs, capital
accumulation, forms of business organisation and services. And as
one scathing
writer points out, the concept fails to acknowledge
that a stretch of land can be used for several different purposes
simultaneously. Nevertheless, this absurd idea continues to pass
unmolested into almost every discussion of urban planning, including
City of Cities.

If environmentalists are taken seriously at all, it is because they
ride on the back of vested interests who benefit from artificially
inflated land values, since this is the inevitable consequence of
restricting new releases. Alan Moran of the Institute of Public Affairs
argues that the reluctance of
governments to burst the bubble of housing unaffordability by
releasing more land for development can be traced to the undue
influence of existing property owners, including powerful
developers, who stand to suffer a capital loss if the scarcity value
of land is diminished. It is a case of the ‘haves’ depriving the
‘have nots’, such as low income earners and young first home buyers.

Then there are the progressive academics and commentators who insist
the suburbs are zones of social alienation, inimical to personal
contentment and well-being. Consider the Australian FinancialReview's property writer Tina Perinotto, who opposes sprawl
because we can’t afford the ‘psychologists to deal with people who
end up in the lonely greenfield sites’, or left-wing writer Natasha Cica, who raves about ‘the aesthetic and ethical slums of McMansion
affluenza’, or Sydney Morning Herald planning and
architecture writer Elizabeth Farrelly, who calls suburbanisation
‘total-indulgence parenting’, or urban policy academic Brendan
Gleeson, who believes‘shadows of fear
and antipathy are spreading across’ the suburbs.

Progressives
clearly feel a need to delegitimise suburban life. This stems from
their barely suppressed rage against people they can’t control. Like
Kurtz in Joseph Conrad’s Heart of Darkness, suburban people
have strayed too far from civilisation, they contend, and will lose
their minds. Yet they fail to explain why surveys indicate an
overwhelming preference for detached housing on sizeable blocks, or
why the latest Australian Unity Wellbeing
Index registers higher
rates of happiness amongst suburban people than their inner-city
counterparts.

The left’s new poster-boy of urbanism, Gleeson, in particular, leads
a tortured existence: he idealises suburbs as the nation’s
‘heartlands’ while
hating almost everything about them. Gleeson has
latched on to the emergence of so-called ‘gated’ communities as
‘harmful to collective democratic purpose’. This sort of
socio-economic segregation is a recognised downside of the ‘world
city’ scenario, especially in developing countries. In Sydney,
however, it is more likely to mark a transitional stage of
historically disadvantaged areas attracting more prosperous
residents, eager to replicate the superior amenity of affluent
suburbs. To the extent that it heralds the arrival of generally
higher living standards in these localities, it is not necessarily
the evil denounced by Gleeson.

Of course, the enemies of growth don’t give a damn about the storm
clouds perceived by Dr Henry. Sooner or later, however, they will
bow to the inevitable: space and mobility made Sydney’s past; they
will make the city’s future, if it is to be a future worth having.